Economy

Five Breaks the U.S. Economy Needs (And Why We Might Get Them)

By Jim Tankersley and Catherine Hollander

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"For sale" signs line the front yards of several houses in a Hollywood, Fla. neighborhood on Saturday, Sept. 20, 2008. Housing agents say buyers seem more confident now that the federal government is stepping in to stabilize the economy, but potential buyers still face tough challenges qualifying for mortgages. Experts say that the government's enormous plan to relieve Wall Street banks of their bad investments has a decent chance of stabilizing home prices, at least in theory. If that happens, it will stop Wall Street's bleeding, but could still keep many families locked out of the housing market. (AP Photo/Marianne Armshaw)(AP Photo/Marianne Armshaw)

Hoping for a brighter 2012, economically, in America? You’ll need several big things to break your way. Great news – and, yes, we’re playing optimist here – it’s quite possible they all could. Here are the five breaks the U.S. economy needs this year.

The housing market must stabilize. U.S. home prices kept plunging last year, long after the Great Recession officially ended. Mounting economic research suggests that nothing has held the recovery back more – and that strong growth won’t return until the housing market bottoms out. That, fortunately, appears to be on the horizon. Home sales and new building permits increased at the end of 2011. The rate of decline in housing prices slowed. Mortgage rates are low, and credit is starting to thaw for buyers. Economists at PNC Bank predict a “housing turnaround” that will support modest growth this year. Prices might stop falling by year’s end – not an ideal timeline, but a start.

Europe must avoid catastrophe. The eurozone’s economic problems are not going to be solved in a year. Most economists are forecasting a recession across the continent in 2012, although predictions vary on its severity. If the recession is mild and Europe's leaders take steps to address their fiscal problems – and most important, the Continent avoids a crippling wave of sovereign defaults and bank collapses – the U.S. economy could escape with minimal drag from the serious problems across the Atlantic.

Job creation must pick up. Barring major economic shocks or fallout from Europe, economists are cautiously optimistic that the labor market will continue chugging along. The first Labor Department employment report of 2012, which showed job growth in December 2011, was surprisingly strong. The economy added 200,000 jobs -- well above the 90,000 needed to keep pace with population growth -- and the unemployment rate fell to its lowest level in nearly three years. At 8.5 percent, that rate will have to continue ticking down in 2012 to meaningfully change the economic conversation. But if job creation continues to trend upward, it just might do that.

Oil prices must not spike. Let’s be honest: Oil – and, by extension, gasoline – prices are almost certain to rise this year due to ever-growing demand in the developing world and Middle East tensions that threaten supply. More expensive oil hurts growth, yes, but it would take a dramatic price spike to snuff the U.S. recovery. Such a spike would result from Iran following through on its threat to block the Strait of Hormuz in retaliation for a European ban on Iranian oil imports. But many analysts believe that Tehran is bluffing – and if the blockade never materializes, there may be enough downward pressure on prices (from falling European demand, for example) to ward off a spike.

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Washington lawmakers must behave. Which is to say, not do anything else to undermine investor confidence or slam the brakes on growth. Simply put, that means that Congress and President Obama need to reach agreement on extending the payroll-tax cut for the whole year, not just two months; to allow the scheduled $1.2 trillion in spending cuts from last year’s debt-ceiling agreement to take effect in 2013; and to refrain from any further confidence-crushing fights over keeping the government running or avoiding a default on U.S. debt. This is the break we’re least optimistic about – but if there’s a shred of optimism to be had, it’s timing. Congress’s biggest economic fights – such as what to do about the expiring Bush tax cuts – will probably come late in the year, after the November election.